Weapon tech can advance over thousands of years, the foundations of basic physics cannot. Unless you want to state that there is some magic unobtanium metal that allows it to sink but only so much, and can be randomly removed to then float again.
Um... not sure where you're getting this magic unobtainium metal thing... all you need is ballast tanks flooded with water to dive, and then blown out again to surface. Like real world submarines actually do. Sure, you would need bigger tanks that could fill/empty faster in order to dive/surface a bigger submarine, but I don't see a problem there.
I don't like the groundfire vs. submerged units mechanic either. Purely from a gameplay perspective, the role of the Battleship is surface bombardment, especially against shore installations. Killing subs is what torpedoes are for.
Regarding the Atlantis, these are the changes I would make to it:
-Increase AA and torp range
-Increase torp damage (so they can stand their ground against Sera T3 subs)
-Increase the amount of time it takes to dive/surface (do this for all submarines)
-Make it able to build aircraft while moving (if possible -- though back in the day I think I remember this being something the game engine can't do)
-Increase cost to balance